We all remember our first car and the excitement and sense of freedom that came with it even if it wasn’t the smartest or newest model on the road! And in later life if we’re lucky enough to be able to afford a slightly more expensive model, cars can become a status symbol.
But what if this desire to own was taken away and replaced instead with a desire for convenience and a “pay as you go” approach? Much has been made in the media that Generation Y is more interested in a usage model than owning goods. As a result, will we see a shift in the long held and traditional model of how we own and use cars?
In this briefing, written in partnership with Drive Midlands, a support programme developed for and with the automotive industry, we look at what it might mean for the various stakeholders in the automotive industry if we do make this change to a hire system.
A “pay as you use” system may make economic sense as it removes the need for the upfront capital investment and later repayments required to purchase a car, along with the ongoing burden of running costs and regular servicing and MOTs. A change in the ownership model may make access to transport more accessible and affordable.
The manufacturers and dealerships
Brand loyalty is vital in the car industry, with a focus on keeping the customer happy so that they return time and time again. However, if it is not individuals purchasing vehicles but hire companies then manufacturers and dealerships will need to re-think how they build and secure that brand loyalty and repeat business.
Companies purchasing vehicles for a hire fleet will be focusing on value for money, reliability and costs of servicing and operation, rather than the sometimes more “emotional” decision making of individuals linked to brand status, design and appearance. Will this lead to the end
of the high specification and customisation of vehicles as we move to a more functional approach where cars are built for passenger comfort and high mileage?
If we do, this will impact upon the manufacturers’ product development strategies as they link new vehicle requirements to the altered customer base. This in turn will alter the focus of the automotive supply chain as it looks to support the manufacturers’ revised requirements.
Second hand sales market
If cars are held in fleet ownership and we pay to use vehicles only when needed, it is conceivable we will see an end, or at least a drop off, in the second hand market. After all, why buy a second hand car if you can hire a new one when you need it? Because hire companies will demand a decent return on the investment they make when purchasing vehicles, fleet cars will be subject to higher mileage and wear and tear reducing the likelihood of these vehicles being an attractive second hand option. It’s also worth noting what happens to lending and risk profile or vehicle financing if there is no aftermarket.
At present, there is a focus on personal finance to support the individual ownership model, through the provision of personal loans, individual leasing and hire purchase agreements. Often brands have their own captive finance companies to meet this demand and help secure the ongoing customer relationship with the brand. However, with a move to a new model of ownership:
- Will we see more opportunities for fleet financing and therefore a change in the parties providing finance to the industry? Or a change in focus of the captive finance companies to a fleet finance model?
- If vehicles are used for car sharing and hire, how does that affect the residual asset value and therefore the lending profile and risk? As already mentioned, if these vehicles are subject to heavy use and the availability of cars for hire is economical and convenient then will there actually be a market for second hand cars?
- Are there new opportunities for finance companies to support the new ownership and usage model, through supporting cashless, secure and instant payment methods for the hire of cars?
Currently we are used to buying our car insurance for a specific vehicle and drivers. If we start to hire cars instead or owning, do we secure our own insurance which applies irrespective of the vehicle we drive or do the hire companies arrange for the cover and include the costs in the hire costs? Because fleet insurance would not take into account the risk profile of the individual driver, premiums could be higher as the insurers cannot assess their risk profile with the same degree of certainty as they can with individuals with a known claims history. And if vehicles in a fleet are financed then how can finance companies get the guarantees they require that the right insurance is in place to deal with an accident or theft relating to a finance vehicle?
Public transport providers
If access to cars is made easier and cheaper, it is conceivable that demand for public transport will drop. Given the need to maintain environmental and sustainability commitments and to reduce the number of vehicles on the road, we will need to think about how any new model
of ownership can work in conjunction with our public transport infrastructure. For example, could we use shared vehicles to drive to public transport hubs and make the switch easy with drop off points for cars at stations and bus depots?
If we can keep the process simple, the dovetailing of a new model of car ownership and public transport may in fact allow greater mobility at a lower cost. People in more remote locations of the country would gain easier access to the wider transport network and this may encourage people out of their cars and onto public transport for journeys. How might all this fit with other infrastructure projects. For example, a new era of transport is about to begin in the United Kingdom, where West Midlands will become the first region to pilot Mobility as a Service (MaaS) to its residents. MaaS is a technology enabled integrated approach to mobility, catering for many different modes of transport, integrated ticketing and providing a smooth consumer experience.
The pioneering service, Whim by the MaaS operator MaaS Global, will be launched in the West Midlands metropolitan area in early 2017. The goal of MaaS is to build an attractive, comprehensive and convenient service with long-term viability. Councillor Roger Lawrence, lead member for transport for the WMCA, sees MaaS as a great idea to encourage people to consider how they get about other than with the private car.
David Shepherd from Drive Midlands says:
“At this stage it’s difficult to see what Maas might mean for the automotive supply chain. There may be an increased demand for control systems. In more developed countries with a high ratio of car ownership per driver, the need for vehicles may decrease. However, in less developed countries, MaaS could increase vehicle demand as MaaS increases access to mobility and transport.”
Considering the recent success of Uber, any new ownership models will need technology to underpin it, from reservation to payment systems. In the hire market, companies will also need to consider fleet management solutions and how they track vehicles and deal with drop-offs and returns in different parts of the country, or even in different countries! All of which could present opportunities for the technology industry.
So, while a change in the car ownership model may present challenges to the market and raise more questions than answers at this stage, it also offers exciting opportunities for those stakeholders willing to keep their mind open to the possibilities. Maybe you can be one of the disrupters in the market?
Find out more about Drive Midlands here.